If Israel uses an atomic bomb, the whole world enters a new era of nukes. It's the worst worst case scenario there is. It was my biggest worry during the Gulf War (remember those germ warfare-tipped scud missiles Sadaam sent into Israel?). I wonder how close Israel came to nuking Baghdad then. I'm glad I wasn't a fly on the wall in those discussions.
Instability in the Middle East has so many causes these days that it's hard to see how things can ever get better. A catalyst is that the US occupation of Iraq is widely seen as both illegitimate and a failure, so in one fell swoop the US has lost both respect and fear.
The bombings and border incursions by Hamas and Hezbollah are not about getting Israel to draw a new border. A Palestinian state is not even the point anymore, if it ever was. Hamas, Hezbollah, the Muslim Brotherhood, Iran and Syria are all working towards restructuring the Middle East... and there is a whole lot of jostling as to who will run the show. Part of the deal is to wipe out Israel, but Jordan could be next. (Article 6 of the Hamas covenant says that Hamas "strives to raise the banner of Allah over every inch of Palestine... this is the law - namely that no part of Palestine may be given up - and the same goes for any land the Muslims have conquered by force, because during the time of Islamic conquests the Muslims consecrated these lands to Muslim generations till Judgement Day."
Israel is just the finger in the dyke. And the past 25 years have shown that when Israel makes concessions, Arab extremist aggression escalates. When Israel stands tough, the dyke holds. Israel is bombing the bejeezus out of Lebanon, and next it's going to invade and probably go door to door throughout the south, routing Hezbollah. It's heartbreaking to think of the destruction in the beautiful country of Lebanon, but it's not clear that there's any hope for the region if they don't.